Aldi’s expansion puts grocery retailers on notice

Discount grocery retailer Aldi announced June 11 that it would invest $3.4 billion to expand its U.S. store base to 2,500 by the year 2022.

The German grocer currently operates 1,600 stores in the United States and said earlier this year it would expand to 2,000 by the end of 2018 at a cost of $1.6 billion.

The $5 billion move would have Aldi as the third-largest U.S. food retailer by store count behind Walmart and Kroger.

“It should absolutely be more than scary to traditional grocers and retailers,” Mikey Vu of the consulting firm Bain & Co., was quoted as saying in a June 12 article in The Wall Street Journal. Vu said Aldi has improved its stores and products in recent years, and is attracting a larger mix of shoppers.

A point of differentiation by Aldi and other discounters, such as Lidl, which is set to open its first U.S. locations this week, is their longstanding use of store brands to keep prices down, a common practice in Europe. U.S. consumers have traditionally been more brand loyal, but that is beginning to erode, especially with the millennial generation.

Millennials “are value-oriented and don’t hold the same stigmas about private-label items that older generations do,” Mike Paglia, director of the research firm Kantar Retail, was quoted as saying in the WSJ article.

“As we continue to expand and grow, our purchasing power continues to increase and allows us to bring products at better prices for consumers,” Scott Patton, Aldi’s head of corporate buying, said in an interview with CNBC.

Aldi said the new store openings would create 25,000 jobs over the next five years.